Why Accountants will Solve Climate Change
Transcriber: Alexis Young
Reviewer: Helen Chang
I’m a young father.
I have two young kids.
I recently bought a house.
It’s all great.
But it also means that as a family,
we need to keep an eye on our budget
to make sure that we’re not spending
more than we can afford.
But yesterday, I had a great idea.
I took my smartphone,
opened my bank application,
and I added one extra zero to the money
that we have on our bank account.
Problem solved.
No more constraints on our family budget.
I am also an entrepreneur.
And when you run a business,
you need to keep an eye
on the financial budget of your company.
If you spend too much,
the company might go bankrupt.
But I decided to apply the same trick
and added not one but two zeros
to the bank account of my company.
Problem solved.
No more financial constraints,
running my business.
Of course, this story
is not fully accurate.
Yes, I am a young father.
Yes, I am an entrepreneur.
But I’m sorry to disappoint you,
you cannot add randomly zeros
to your bank account.
And frankly, let’s be happy.
Let’s be happy that we’re not
living in a world
where people can decide how much money
they have on their bank account.
Let’s be happy that we do keep track
of how much money
companies and families earn,
how much they spend
and how much they have.
Let’s be happy that we have
clear financial accounting rules.
We are not all financial
accountants ourselves.
Actually, most of us are not.
But we do take financial
accounting very seriously.
And if something goes wrong,
if money goes misreported,
we have strong words for it,
like fraud, like money laundering.
So it’s clear that we are not living
in the world that I described
in the beginning.
But oddly enough,
it is kind of the world that we live in
when it comes to carbon emissions.
Carbon emissions have the power
to change the way we live,
to change the way
that we organize our society
for generations to come.
But somehow, we are not keeping track
of who is emitting what, when and where.
But it’s surprising that we approach money
and carbon emissions so differently.
Because, in the end,
there are a lot of similarities
between both.
As humanity,
we have a certain carbon budget
that we can still use,
just like companies and families having
certain financial budgets that they use.
Let me explain the concept
of a carbon budget.
And to understand what a carbon budget is,
it’s important to realize that our climate
is basically like a bucket with hot water.
This bucket is already filled
with all historical emissions
that we have emitted
since we started burning fossil fuels
on the large scale
around two centuries ago.
And every year that we continue
to emit carbon emissions,
we add a bit of hot water to this bucket,
up to the point where the bucket
starts to overflow.
And that point corresponds to a 1.5
degrees Celsius temperature increase.
And that’s a temperature increase
where scientists say
that if we go above that level,
climate change will drastically impact
the way that we live.
The amount of water
that we can still add to this bucket
until it starts to overflow,
that is our carbon budget.
Or in other words,
the amount of carbon emissions
that we can still emit
before we reach the 1.5 limit,
that’s our carbon budget.
So let’s put some numbers on this.
Our remaining carbon budget
is around 600 gigatonnes
of carbon emissions.
And I assume that you’re not all familiar
with the unit ‘gigatonnes’
of carbon emissions.
So let’s say that the 600 is represented
by the green circle on the slide.
To put that number in perspective,
know that our total carbon budget
is around 2,600 gigatonnes
of carbon emissions.
And of this 2,600,
we have already used around 2,000,
so around three quarters
of our total carbon budget,
the current level of carbon emissions
is around 40 gigatonnes
of carbon emissions.
So at the current level
of carbon emissions,
we have another 15 years
before we’ll have used
our total carbon budget.
So let’s say that you are
the president of the world
and you can decide on how we use
the 600 remaining carbon budget.
How would you use it knowing
that we have around 30 years to spend it
before we need to reach
climate neutrality around 2050?
Or maybe an example
that’s more familiar to your situation?
Let’s say that I give you 600 euros
and 30 days to spend it.
How would you do it?
Maybe you would decide
to just spread it equally
over that time period.
Maybe you would start
at your current level of spending
and then slightly decrease it
over these 30 days.
Or maybe you are the kind of person
that just like to spend it all
in the beginning
and then be broke for the remaining time.
So that is why we need carbon accountants.
We need carbon accountants
to help us managing our carbon budget.
We need carbon accountants to keep track
of who is emitting carbon emissions,
when and where,
just as we need financial accountants
to help us managing financial budgets
of companies and families.
But how does it work in practice?
How can carbon accountants
help us addressing climate change?
Let’s take an example to explain that.
Let’s say that you are an investor,
maybe a rich one, maybe a small one,
looking to buy some shares of a company.
But you’re doubting between two companies,
company Black and company Green.
As a good investor, you do your homework.
You look at the financial reports,
which you can compare apples-to-apples
because both financial reports
have a similar structure,
use similar terminology.
And it turns out that company Black
has today a slightly better
financial performance
than company Green.
But you also look
at their sustainability reports.
These reports are hard
to compare apples-to-apples,
because they don’t use
the same terminology,
they don’t have the same structure.
But it turns out that company Green
is very transparent.
They report their carbon footprint.
They seem to have
a very clear climate strategy
to remain competitive
in a low carbon economy.
Company Black, on the other hand,
they are very untransparent.
They don’t report their carbon footprint.
They don’t seem to have
a clear climate strategy.
So which of these two companies
would you invest in?
For me, it’s very clear.
I would definitely invest
in company Green,
and the reasoning is very simple.
It is just a safer bet
to put your money in a company
that is preparing for a low carbon
or carbon neutral economy.
So I invest my money in company Green,
and I am very proud of that.
So I will start to tell my friends,
my family about this decision,
and maybe they will also start
to invest in company Green
and not in company black.
And when this starts to play
on a large scale,
more and more money
will flow towards company Green
instead of company Black.
And this example is not
just an imaginary example.
It is happening as we speak
all over the world.
Today, slightly more than half
of the S&P500 companies
disclose their carbon footprint.
S&P500 are the 500 larges
American publicly listed companies.
And this number is increasing.
The last five years,
we have seen a 70 percent increase
in number of companies
disclosing their carbon footprint,
in this case,
to the carbon disclosure project.
And it is not only about investors
steering money to greener companies,
it’s also about governments
requesting climate transparency
of companies that they work with.
It’s also about employees requesting
more and more climate transparency
of the companies they work for.
It’s also about customers,
professional private customers
requesting more climate transparency
of the products and services
that they buy.
So this is what carbon accounting can do.
It’s not very sexy.
It’s not a silver bullet
that will solve climate change,
but it creates transparency
on the climate impact of companies.
And once the transparency
is there out in the open,
people will change their behavior,
to take that information into account.
Investors will start to steer their money
more towards greener companies.
Employees will start to work more
for greener companies.
Customers will start to buy more
from greener companies.
So that is what carbon accounting can do.
It’s a very strong lever
to address climate change.
But we’re not yet there.
There is still a lot of work to do,
in particular on two aspects.
The first one is that the field
of carbon accounting
needs to become more mature.
In other words, today, carbon accounting
is kind of a toddler,
but it needs to become a grown-up
over the coming years.
What do I mean with that?
Let’s take the example
of financial accounting again.
In financial accounting,
there are very clear international rules
on how to report on the financial
performance of a company.
And when a company reports
on its financial performance,
an independent third party comes in
to review their books
and make sure that everything
is done properly.
We’re not yet with carbon accounting.
These strict rules, processes
are not yet in place
for carbon accounting,
so that needs to happen
over the coming years.
A second important aspect
where there is still a lot of work to do
is on the number of companies
that are disclosing
their carbon footprints.
Still, more and more companies
need to start disclosing
their carbon footprint.
But the good news is
that it’s kind of a domino effect.
The more companies
that disclose their carbon footprint,
the more companies that will follow.
And it works as follows:
It typically starts
with very large companies
disclosing their carbon footprint,
often on requests of investors.
But these very large companies,
they buy products and services
from medium-sized companies,
so the large companies also start
requesting climate transparency
of the medium-sized companies,
and then the medium-sized companies
start to disclose
their carbon footprint as well.
And then the same effect happens
between medium-sized companies
who buys product and service
from small companies.
And the medium sized companies
start requesting climate transparency
of these small companies,
and then these small companies
start to disclose
their carbon footprint as well.
So that’s the final takeaway message
that I have for you:
Be aware of this falling domino effect,
and realize that you are part of it.
As an employee,
you are part of it.
So start requesting climate transparency
of your employer.
As a student,
start requesting climate transparency
of your university.
As an investor,
start requesting climate transparency
of the companies that you invest in.
And as a consumer,
start requesting climate transparency
of the companies where you buy
products and services from.
Thank you.